[okaRam14]

Hello,

Im studying FAR from the becker material, and I cant understand the difference between Prepaid Expenses and Deferred Charges (page 7 and 8). It says Charges are something to do with intangibles, but the video doesnt explain it too well.

Can someone please help me with this.

[Anonymous]

Think of it like this-

A prepaid expense is something like an insurance premium. The expense is for an annual period, but the expense is allocated to each month. For example, an insurance premium is $12 for a year. You pay $12 in advance. The $12 is a prepaid expense, because you are covered by the insurance immediately. Each month, you reduce the prepaid expense account by $1 to match the expense to each period.

A deferred charge would be something like rent. You pay $xxx for 12 months' rent, but you have not realized the benefit of next month's rent yet.

Either way, you will not be tested on this difference.

[okaRam14]

Thanks for your reply Audit_This.

Would you also be able to help me with the difference between Unearned Revenue and Deferred Credits.

From the text i understood that Deferred Credits are advance payments we receive from others using our assets (such as royalty, rent and interest), while Unearned Revenues are are advance payments we receive to provide our primary services.

Is the only difference between them, core revenue vs secondary revenue?

[Author]

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